Filtered by Topic: Monetary Policy Use setting Monetary Policy
Monetary tightening cycles in EMs are advanced relative to DMs, and are now drawing to a close in many countries. Elevated inflation will mean that policy will stay tight over the coming months, but the conditions for several EM central banks to start …
24th November 2022
This morning’s 75bp increase in the Riksbank’s policy rate was in line with expectations, and both the press statement and Monetary Policy Report are consistent with our view that policymakers will raise rates to a peak of around 3% next year. Beyond …
Tightening cycle not yet finished This morning’s 75bp increase in the Riksbank’s policy rate was in line with the consensus and market expectations while the press statement is consistent with our view that policymakers will raise rates to a peak of …
The Bank of Korea (BoK) today raised interest rates by a further 25bps (to 3.25%) and the accompanying hawkish statement suggests the tightening cycle still has a little further to run. We are tweaking our forecasts for next year and now expect one more …
The Bank of Korea today raised interest rates by a further 25bps (to 3.25%), but with growth slowing and inflation easing, we think there is a good chance this marks the end of the central bank’s tightening cycle. Today’s decision came as little surprise …
How many is “various”? The minutes of the Fed’s early-November policy meeting suggest that although most officials were in favour of slowing the pace of rate hikes at upcoming meetings, there was no consensus on how high the peak in rates would ultimately …
23rd November 2022
Having surged for the best part of two years, EM inflation appears to have passed the peak in this cycle. Our measure of aggregate EM inflation dropped from 7.8% y/y in September to 7.4% y/y in October. (See Chart 1.) Looking ahead, we think that …
With fiscal policy no longer expected to be ultra-loose and some signs emerging that domestic price pressures will ease further ahead, we no longer expect the Bank of England to raise interest rates to a peak of 5.00%. Our new forecast of an increase …
Surprisingly strong inflation to keep hawks in majority South Africa’s headline inflation rate picked up unexpectedly in October, to 7.6% y/y, and the jump in core inflation will be a particular worry for policymakers. Another 75bp hike in the repo …
The Reserve Bank of New Zealand hiked the overnight cash rate by 75bp as most had anticipated but signalled a much higher peak in the OCR than in August. We’re now forecasting another 75bp hike in February followed by a final 50bp hike in April, but we …
RBNZ will hike rates above 5.0% The Reserve Bank of New Zealand hiked the overnight cash rate by 75bp as most had anticipated and it now seems likely that rates will peak closer to 5.5% instead of our current forecast of 5.0%. The statement was very …
Although the annual rates of core inflation increased in October, we suspect the Bank of Canada will point to the declines in the 3-month annualised rates of CPI-trim and CPI-median to justify dropping down to a 25 bp interest rate hike at its meeting …
22nd November 2022
The Central Bank of Nigeria (CBN) raised the benchmark rate by 100bp, to 16.50%, today, and MPC members appear to be itching to take their foot off the monetary policy brakes. But we suspect that the incoming inflation data will prevent them from doing so …
The resilience of consumer spending is keeping hopes of a soft landing alive. Although GDP growth looks to have slowed in the fourth quarter, and most leading indicators of recession are flashing red, solid retail sales and a jump in vehicle sales …
MNB hasn’t won its inflation battle yet Hungary’s central bank (MNB) left its base rate on hold today, at 13.00%, for a second consecutive meeting and reaffirmed that it would continue to use its “market stabilisation” tools to defend the forint. With …
The Bank of Israel (BoI) slowed down the pace of tightening today with a 50bp rate hike, to 3.25%, as it emphasised the tightening delivered so far and the early signs that economic activity is slowing. We think it will end its tightening cycle early next …
21st November 2022
The RBI has hiked interest rates by 190bps since May and, while that is relatively benign compared to the moves seen in many other EMs, this tightening is now feeding through to the economy. Purchases of big ticket items such as passenger vehicles have …
Voters in Turkey head to the polls in 2023 and if the ruling People’s Alliance and President Erdogan cling on to power, the authorities are likely to double down on their “new economic model”, raising the threat of simultaneous currency, banking and …
Headline inflation shot up to 3.7% y/y in October , the strongest since December 1990 while inflation excluding fresh food and energy rose from 1.8% to 2.5%. Although this puts inflation well above the Bank of Japan’s target, the case for tightening is …
This week Fed officials pushed back against the market rally in the wake of October’s unexpectedly weak CPI report, but with only limited success. Despite officials reaffirming that they still had “a ways to go” in tightening policy and that they …
18th November 2022
As the dust settles on this week’s Autumn Statement, we take a step back and answer three key questions. (Clients can catch up on our detailed analysis and our Drop In webinar following Thursday’s fiscal event here and here .) With the economy entering …
Lula’s spending cap exemption plans spook markets Brazil’s financial markets remained on the backfoot this week as the Lula team stepped up its fight against the spending cap. And, while officials have since tried to reassure investors, the developments …
Although the data this week showed renewed rises in the annual rates of CPI-trim and CPI-median inflation in October, our calculations show that the timelier 3-month annualised measures both declined. That could persuade the Bank of Canada to drop down …
In next week’s MPC meetings in South Africa and Nigeria, inflation concerns are likely to hold sway over economic woes, and we expect both central banks to keep raising interest rates. South Africa’s tightening cycle is likely to continue for some time, …
Rebound in Asian currencies unlikely to last The rebound in Asian currencies triggered by the weaker-than-expected US CPI data for October already appears to be running out of steam. A number of currencies, including the won and the rupiah, have dropped …
Having increased sharply throughout the year, we think that emerging market (EM) local currency sovereign bond yields will probably only increase by a little more in the first half of next year, despite a looming world recession. Yields may then start to …
Domestic demand coming off the boil Recent data paint a mixed picture of the state of domestic demand. On the one hand, survey evidence remains relatively upbeat. The PMI readings for India have recently held up much better than in most other EMs and …
With inflation still more than five times the Riksbank’s target, Stefan Ingves may be tempted to end his marathon stint as Governor with another 100bp rate hike. But we think the Bank is more likely to raise rates by 75bp, to 2.5%, while signalling more …
17th November 2022
Next year will be characterised by falling headline inflation, which should help to prevent interest rate expectations and bond yields from rising much further. But we also expect core inflation to remain above 2% for some time. As a result, we think …
Higher interest rates and larger private sector debt burdens mean that debt interest service ratios could rise to levels last seen in the 1990s in many EMs next year. This is unlikely to be a major problem in a handful of EMs such as South Africa, India …
Bank Indonesia (BI) today raised interest rates by a further 50bps (to 5.25%) and we think further hikes are likely as the central bank looks to support the rupiah and clamp down on inflation. In its press conference the central bank stated that …
Little sign of goods price pressures easing Final inflation data for October confirm that price pressures strengthened and became more broad-based. Unlike in the US and UK, there is little sign that goods inflation has passed its peak. While headline …
The central bank of the Philippines (BSP) today raised its main policy rate by a further 75bps (to 5.0%), and we think further tightening is likely in the near term. But with inflation having probably peaked, headwinds to the recovery mounting and the …
More hikes coming in Indonesia Bank Indonesia (BI) today raised interest rates by a further 50bps (to 5.25%) and we think further hikes are likely as the central bank looks to support the rupiah and clamp down on inflation. While a rate hike today was …
Further hikes likely in the near term, but tightening cycle to be over by early next year The central bank of the Philippines (BSP) today raised its main policy rate by a further 75bps (to 5.0%), and we think further tightening is likely in the near term. …
Core inflation pressures better than they look Although the annual rates of CPI-median and CPI-trim edged up in October, the 3-month annualised rates that the Bank of Canada is now focussed on declined. As that for CPI-median is now in the 1% to 3% …
16th November 2022
Broad-based strength in labour market and inflation to prompt 75bp hike next week Rates to peak at 5.0% by April With inflation set to drop back, RBNZ will cut rates in late-2023 With the labour market and inflation going from strength to strength and …
Inflation may have peaked, but battle not yet won It’s possible that the big leap in CPI inflation from 10.1% in September to a new 40-year high of 11.1% in October will mark the peak. But core inflation may yet rise further, which is why we think the …
Fresh upwards pressures pushing up inflation Data out of Nigeria showing a pick-up in inflation to 21.1% y/y in October offered little sign that price pressures are abating. And that’s before the effects of recent flooding and currency weakness have fully …
15th November 2022
Rise in core inflation will keep Riksbank in hawkish mode Another bigger-than-expected increase in core inflation, to 7.9% in October, will keep the Riksbank focused on slowing demand when policymakers meet next week. We expect a further 75bp rate hike, …
Prices pressures are moderating in earnest The substantial falls in both headline consumer and wholesale price inflation in October reinforce our view that the Reserve Bank will slow the pace of monetary tightening in its next scheduled policy meeting in …
14th November 2022
Sovereigns tap the dollar bond market Governments in Turkey and Poland made a splash this week as they announced rare dollar bond issues. Turkey appears to be taking advantage of low credit spreads but the decision in Poland follows recent concern among …
11th November 2022
Lula starting to show his true colours? Developments this week poured cold water on the rally in Brazil’s financial markets that followed Lula’s election victory. Comments from Lula himself yesterday suggesting that higher spending should be prioritised …
Bank of Canada Governor Tiff Macklem said this week that the unemployment rate will need to rise to help restore price stability, but he also played down the significance of the strong gains in employment and average earnings in October. That suggests …
The big fiscal tightening set to be unveiled at the Autumn Statement on 17 th November is coming at a time when the economy is probably already in recession. And the fiscal consolidation, rumoured to be worth a total of £54bn (1.9% of GDP), could risk …
House prices falling in Sweden and Norway Sweden’s housing market has cooled significantly this year and prices are likely to fall outright soon. SEB’s monthly survey showed that in October, 22% of households expected house prices to rise whereas a much …
Savings rate fell below pre-virus level in Q3 Comments by RBA Deputy Governor Bullock suggest that the risks to our above-consensus policy rate forecasts are shifting to the downside. Bullock noted today that the Bank is getting closer to the point where …
Another 75bp hike, but end of tightening cycle on the horizon Mexico’s central bank delivered a fourth consecutive 75bp interest rate hike, to 10.00%, today but, with inflation now past its peak and the economy likely to slow sharply over the coming …
10th November 2022
